( Reuters ) - Morgan Stanley on Wednesday said third-quarter profit fell as the summertime freeze in mortgage and corporate loan markets forced the bank to mark loans down by $940 million, but shares held their own on optimism that financial markets may be starting to revive.
The No. 2 investment bank by market value said net income fell 17 percent to $1.54 billion, or $1.44 a share, in the fiscal quarter ended August 31, from $2.58 billion, or $1.75, a year earlier.
Excluding earnings from Discover Financial Services, a credit card company spun off in June, income from continuing operations fell 7 percent to $1.47 billion, or $1.38 a share.
On that basis, Morgan Stanley fell short of the average analyst forecast of $1.54 a share, according to Reuters Estimates.
Morgan Stanley shares ranged between a 1.6 increase and a 0.6 percent decline, and were hovering around unchanged from Tuesday's close at $68.51, as some investors bet that the recent credit crunch is easing. The Federal Reserve on Tuesday cut benchmark rates, a move expected to boost lending and deal activity.
Other investment bank shares were higher. Goldman Sachs Group Inc, which reports results Thursday, climbed 2.8 percent.
"The price movement, the lack of liquidity, the behavior of hedges in August was clearly very stressed and very pronounced, but I do believe the worst is over," said Colm Kelleher, Morgan Stanley's global head of capital markets and its incoming chief financial officer.
"We're seeing some clear signs of recovery," said Kelleher, who will succeed a retiring David Sidwell at the end of the year. "This will take some time to work through the credit markets. I would suspect you're talking about one to two quarters."